If Convinced Stock Market is Heading South, How Best to Profit?

[admin]

I’m convinced that the broad stock market will be taking an important turn south within three-to-six months (after the subprime and alt-A defaults increase, employment declines, homes sit on the market, blah, blah, blah).

Now that I’ll be out of gold mining mutual funds as of tomorrow (and given that I ‘need’ to make up for my 8.5% fall from Monday’s peak), I’m considering moving into an inverse fund. Funds that I’m considering are RYTPX, URPIX, and SDS.

Any strong preferences amongst the three? Any others that I should consider?

Thanks for your help!

[Anonymous]

Check the Proshares family of Exchange Traded Funds, lots of variety of bear funds including an inverse fund relating to real estate. Also, ETFs are preferable over mutual funds.

[LookoutBelow]

I would be seriously surprised if the market were to continue its fownward spiral…….After all …? what does it take for the PPT (plunge Protection Team) to print up a few thousand tons of 100 dollar bills and re-inflate the market ?….Would only take a few days I would imagine.

After what I've seen in the last 2 years on the market, they dont have any intentions to let it crash….they get what they want.

 

[IrvineRenter]

Personally, I have purchased puts on DIA, SPY, and QQQQ. I bought some with March and some with April expiration. If you don’t trade options, you can short the DIA, SPY and QQQQ directly. IMO, The market will not be going up in the next 60 days.

[Anonymous]

It appears that there’s a nice correlation between stock market values and margin debt. (http://www.nysedata.com/nysedata/asp/factbook/viewer_edition.asp?mode=table&key=3032&category=8)

I assume that margin debt feeds ever higher levels of the S&P:

[img_assist|nid=2767|title=|desc=|link=node|align=left|width=466|height=311]

I assume that margin debt feeds ever higher levels of alternative assets, too, like gold mining mutual funds (e.g., UNWPX):

[img_assist|nid=2768|title=|desc=|link=node|align=left|width=466|height=311]

So, I’m happy to be out of gold mining mutual funds and gold until margin levels return to sane levels (or until there’s a big correction in the price of UNWPX/VGPMX/GLD).

[Chris Scoreboard Johnston]

Chris Johnston

Be careful chasing this down, we are setting up what could be a very nice rally that should start in about 45 days approximately, about tax time. Strong bonds on a stock drop is not what crashes are made of. If the bonds had weakened this would be a different story. If you are convinced that you want to be short, just go with put options on the Q’s or SPY’s or OEX. There you get limited risk, but will profit nicely if a crash happens. I think we will work lower in the near term, so it depends on your time horizon. I think we will be higher than where we are now by August.

[h82rent]

I echo what deadzone said regarding ProShares. They have inverse ETFs (which attempt to return the opposite of the Dow, S&P or NAZ. And they have ultra inverse ETF’s, which attempt to return twice the opposite of the indicies.

You can lean more about them here:
http://www.proshares.com/funds

Currently, I have a decent amount in QID (ultra inverse the NASDAQ). Mostly in stable accounts now, but have about 10% or so in QID.

I also agree with others who caution you to be careful. I think that is always the case. Stocks, home purchasing, etc. But if you do want a short position, these funds are an easy way to do it.

Good luck (to all)!

[Anonymous]

Thanks all for your counsel; I had not thought of buying put options directly.

I’m leaning towards The ProShares UltraShort S&P500 ETF (SDS). Seems to have the lowest expense ratio of the the three, and the performance of the three appears near identical.

To-date, my analysis and gut sense have served me well, and I made good money over the last two years by being 100% in VGPMX and UNWPX (gold mining company mutual funds). My wife may put a ‘stop order’ on this, but I’m leaning towards going 100% into SDS.

[Anonymous]

jg:

If you truly want to profit and survive the coming chaos, get a few of your closest friends and buy some land, say 100 acres on a lake, up in northern Idaho. Build an enormous log home on the lake, and some guest houses throughout the property. Ensure that you have a ‘man’ room in the house that will also double as your armory and storage room. Buy enough food, supplies and weapons to survive five years without outside contact. Fly up once a month with your family and friends to enjoy the land, hunt, fish, and prepare for the coming collapse. Get a satalite feed for DSL and phone calls so you can track the news and market, make trades etc. If the economy stays strong and we are wrong, you will own a desirable property on a lake that will have appreciated in value as an investment, and you will be a better outdoorsman, like Jeramiah Johnson. If everything goes to hell in a handbasket, you will have a safe and secure place from which to pray and prepare for the end of days!

[CAwireman]

JG, definitely sorry to hear about the gold stock movement.

Question, you were in gold stocks, right?

Did the actual price of gold follow the stocks down or did it stay put?

I was basically wondering if the two are tied closely together or if they tend to rise and fall more independently?

I’ve heard some on this forum talk about buying gold as opposed to buying gold stocks. Would be quite a chore to buy gold and keep an eye on it in the home safe or trust that it would stay put in a safety deposit box in a bank. Also, gold bars would be awkward if one needed to convert some to cash. Coins would be much more practical it seems. (I think some of this was covered in another thread).

Anyway, was wondering about the various approaches to investing in gold and wondered how closely they all tracked in value to one another.

[Anonymous]

Hey, cawm.

I was in two mutual funds that invest almost exclusively in gold mining companies: U.S. Global Investors World Precious Minerals (UNWPX) and Vanguard Precious Metals (VGPMX).

Gold went down this last week, and the gold mining stocks went down the same amount and then some.

Typically, there’s a nice connection between the two: it’s kind of like an arbitrage opportunity if, over the long haul, they did not track each other. Look at the second chart:
http://piggington.com/if_we_have_inflation_why_gold

Recently, though, gold seemed to outperform, and drop less, than the gold mining stocks. Not clear to me why that was.

Gold will be under pricing pressure due to margin accounts getting liquidated. After that, I would think that a gold exchange traded fund, like GLD, would be a highly convenient way to invest in gold. That is, until the Feds look to confiscate gold or mandate that IRAs and 401(k)s be invested solely in Treasuries. At which point, a Swiss bank holding your gold would be better.

[Anonymous]

That’s hilarious, juice!

Unfortunately, as I’m half Mexican, I’m sure the Aryan Nation folks up in the deep Idaho woods would NOT appreciate me owning a big chunk of land, former Navy guy or not.

I’d love to move to Texas, where everyone is armed and, hence, polite. It will be safe in Texas during tough times. It won’t be safe in California, until Californians wise up and realize that, in troubled, troubled times, folks act desperately and that you need to be armed and prepared to act. Otherwise, bad folks will assume that you are a pushover waiting to be shaken down or robbed.

[Anonymous]

Duplicate

[Anonymous]

Katrina made it clear how quickly a large city can fall into chaos, looting and killing. A professor of mine in Austria once told our class about his parent’s experiences during WW2 with the German Army etc. His father’s advice to him when he was young was to “Always maintain a house in the countryside so you have somewhere to go.” While I don’t forsee the downfall of our society, the liklihood of a terrorist attack, earthquake etc. places us at risk. Problem is that there really isn’t any countryside here where we can run to!

[5yearwaiter]

Hi JG how about moving all investment towards any logntermbonds? I am kind of loser by keeping and waiting for Mutualfunds and I don’t have faith anymore on this market until an year. I am already lost 10% this year in 401K and other stocks as investment. I am thinking to move my major money towards LONGTERM BONDS and sit calm. Any idea how this goes ?

5yearswaiter

[Author]

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